CHAPTER 1 Introduction to Enterprise Systems for Management

CHAPTER 1 Introduction to Enterprise Systems for Management 1 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Learning Objectives • Understand the information systems evolution and its historical role in the organization leading to systems integration and Enterprise Resource Planning (ERP). • Learn about ERP systems and evolution, components, and architecture; understand the benefits and drawbacks of implementing ERP systems and how they can help an organization improve its efficiency and worker productivity. • Gain an overview of the implementation process (e. g. , the ERP life cycle, business process reengineering project management, and change management). Understand the role of people, vendors, consultants, and the organization in making the ERP implementation process successful. • Comprehend the ethical, global, and security challenges while implementing an ERP system, and look at the ERP vendors and industry trends. 2 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Preview • In the early days of ERP implementation most management did not understand the magnitude of issues an organization has to consider before, during, and after implementation. • ERP systems are very different from conventional packaged software, such as Microsoft Office and others. • There are no shortcuts when it comes to implementing an enterprise system. 3 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Enterprise Systems in Organizations • Business organizations have become very complex and their business needs can no longer be supported by one single information system. • Information Systems are a critical component of a successful organization today. • Management is generally categorized into three levels: Strategic, Mid-Management and Operational. • Information Systems provide a high level of computer automation to support business functions such as: • Accounting • Finance • Human Resource Management • Customer Service • Marketing • Operations 4 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Figure 1 -1 Management Pyramid with Information Requirements 5 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Information Silos and Systems Integration • Over time, Information Systems create a hodgepodge of independent nonintegrated systems ultimately creating bottlenecks and interfering with productivity. • Organizations need to be agile and flexible and will require their information systems to have integrated data, applications, and resources from across the organization. • To compete effectively, organizations have to be customer focused. – This requires cross-functional integration among the accounting, marketing and other departments of the organization. 6 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Enterprise Resource Planning (ERP) Systems WHAT IS AN ERP SYSTEM? • Enterprise Resource Planning Systems are the first generation of enterprise systems meant to integrate data and support all the major functions of organizations. • ERP systems integrate various functional aspects of the organization as well as systems within the organization of its partners and suppliers. • The goal of an ERP system is to make the information flow dynamic and immediate, therefore, increasing its usefulness and value. 7 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Figure 1 -2 Integrated Systems - ERP 8 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Enterprise Resource Planning (ERP) Systems (Cont’d) • Another goal of ERP is to integrate departments and functions across an organization into a single infrastructure that serves the needs of each department. • ERP systems replace an assortment of systems that typically existed in organizations. (Accounting, HR, Materials Planning, Transaction Processing, etc. ). • ERP solves the critical problem of integrating information from different sources and makes it available in real-time. 9 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Evolution of ERP Timeline System Platform 1960 s Inventory Management & Control Mainframe legacy systems using third generation software-(Cobol, Fortran) 1970 s Materials Requirements Mainframe legacy systems using third Planning (MRP) generation software-(Cobol, Fortran) 1980 s Materials Requirements Mainframe legacy systems using fourth Planning (MRP-II) generation database software and manufacturing applications. 1990 s Enterprise Resource Planning Mainframe client-server systems using fourth generation database software and package software. 2000 s Extended ERP or ERPII Client-server systems using Web platform, open source with integration to fifth generation applications like SCM, CRM, SFA. 10 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Business Processes and ERP • A crucial role of ERP in business is to better position the organization to change its business processes. • ERP software have hundreds of business processes built into the logic of the system which may or may not agree with current processes of an organization. • When implementing an ERP system, organizations have two choices: – Change business processes to match the software functionality. – Modify the ERP software to match the business processes. 11 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

ERP Systems Components • An ERP system consists of: Hardware Servers and peripherals Software Process Operating systems and database Information Organizational data from internal and external sources Process Business processes, procedures, and policies People End users and IT staff 12 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Figure 1 -3 ERP Components 13 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Figure 1 -4 ERP Components Integration 14 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

ERP Architecture • The architecture of an ERP system influences the cost, maintenance, and the use of the system. • A flexible architecture is best – it allows for scalability as needs change and grow. • A system’s architecture is a blueprint of the actual ERP system and helps the implementation team build the ERP system. • If purchased, ERP architecture is often driven by the vendor but other IT architectures are driven by organizational strategy and business processes. 15 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Figure 1 -5 Example of Architecture of ERP at Large University 16 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Figure 1 -6 Logical Architecture of an ERP System 17 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Figure 1 -7 Tiered Architecture Example of ERP System 18 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

E-Business and ERP E-Business ERP Focuses on linking a business with its external partners and stakeholders Focuses on integrating the internal functional silos of the organization into an enterprise application Disruptive technology—Totally transformed the way a business operates in terms of buying and selling, customer service, and relationships with suppliers Adaptive technology—Merged the early data processing and integration efforts within an organization Early focus of e-Business was on communication (e-mail), collaboration (calendaring, scheduling, group support), marketing and promotion (Web sites), and E-commerce (Front office functions) Focus of ERP systems was mainly on data sharing, systems integration, business process change, and improving decision making through the access of data from a single source (Back office functions) 19 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Figure 1 -8 e-Business and ERP 20 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

System Benefits of an ERP System • Integration of data and applications across functional areas (i. e. , data can be entered once and used by all applications; thus improving accuracy and quality of the data). • Improvements in maintenance and support as IT staff is centralized. • Consistency of the user interface across various applications means less employee training, better productivity, and cross-functional job movements. • Security of data and applications is enhanced due to better controls and centralization of hardware. 21 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

System Limitations of an ERP System • Complexity of installing, configuring, and maintaining the system increases, thus requiring specialized IT staff, hardware, and network facilities. • Consolidation of IT hardware, software, and people resources can be cumbersome and difficult to attain. • Data conversion and transformation from an old system to a new one can be a tedious and complex process. • Retraining of IT staff and end users of the new system can produce resistance and reduce productivity. 22 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Business Benefits of an ERP System • Increasing agility of the organization in terms of responding to changes in environment for growth and maintaining market share. • Information sharing helps collaboration between units. • Linking and exchanging information in real-time with supply-chain partners improves efficiency. • Better customer service due to quicker information flow across departments. • Efficiency of business processes are enhanced due to the re-engineering of business processes. 23 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Business Limitations of an ERP System • Retraining of all employees with the new system can be costly and time consuming. • Change of business roles and department boundaries can create upheaval and resistance to the new system. 24 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

ERP Implementation (Business Process Management) • Business process management is the understanding, visibility, and control of business processes. • BPM has a prescribed methodology that should be followed to help document business processes and understand their use throughout the business. • Improved business processes may result in: – Improved customer satisfaction. – Reductions in cost. – Increased productivity by allocating resources to more valueadded activities. 25 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

ERP Implementation (ERP Life Cycle) • The key to a successful implementation is to use a proven methodology, take it one step at a time, and begin with the planning and understanding the ERP life cycle. • ERP system implementations are very risky, and using a well-defined project plan with a proven methodology will assist in managing those risks. • There must be a strong well-communicated need to make the change from the existing information systems/applications to an ERP system. 26 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Figure 1 -9 ERP Life Cycle 27 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Figure 1 -10 ERP Implementation Methodology 28 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Figure 1 -11 Product Life Cycle 29 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Software and Vendor Selection • It is best for an organization that does not have the experience in developing ERP systems to purchase on the market. • Before selecting a vendor, the organization must carefully evaluate its current and future needs in enterprise management systems. • Review the organization’s existing hardware, network, and software infrastructure, and the resources available for the implementation. 30 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Vendor Evaluation • Business functions or modules supported by their software. • Features and integration capabilities of the software. • Financial viability of the vendor as well as length of time they have been in business. • Licensing and upgrade policies. • Customer service and help desk support. 31 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Vendor Evaluation (Cont’d) • Total cost of ownership. • IT infrastructure requirements. • Third-party software integration. • Legacy systems support and integration. • Consulting and training services. • Future goals and plans for the short and long term. 32 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Operations and Post-Implementation • Going live (“Go-live”) is one of the most critical points in a project’s success. • It is vital to focus the efforts of all project teams to ensure that task and activities are completed before going live. – This allows project management to address any outstanding issues that may jeopardize the Go-live date. – This involves a readiness process that needs to include as many team members and appropriate users and managers as possible. 33 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Five Areas of Stabilization are Important: • Training for end-users. • Reactive support (i. e. , help desk for troubleshooting). • Auditing support to make sure data quality is not compromised by new system. • Data fix to resolve data migration and errors revealed by audits. • New features and functionalities to support the evolving needs of the organization. 34 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Figure 1 -12 Project Management 35 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Figure 1 -13 Project Life Cycle 36 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

People and Organization Project Management For an ERP system to be implemented successfully, project management must provide strong leadership, a clear and understood implementation plan, and close monitoring of the budget. Consultants It is often the case for organizations without much ERP implementation experience to use implementation partners such as consultants. 37 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

People and Organization (Cont’d) Change Management This helps prepare for changes to how business is done. In implementing new systems, communicating, preparing, and setting expectations is as important as providing training and support. Business Process Re-engineering Business processes will need to be changed, adjusted, or adapted to the new system to use the functionality of an ERP system fully. Global, Ethical and Security Management Outsourcing overseas, ethical issues, and problems with system security have also attracted a lot of attention in ERP implementation. 38 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

ERP Market Tiers 39 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

ERP Vendors SAP is the recognized global leader among ERP vendors with over 12 million users. Its solutions are for all types of industries and for every major market. www. sap. com Oracle/Peoplesoft As the second largest ERP vendor, Oracle provides solutions divided by industry category and promises longterm support for customers of People. Soft- (acquired in 2004). www. oracle. com Infor The world’s third largest provider of enterprise software. It delivers integrated enterprise solutions in supply chain, customer relationship and suppliers management. 40 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

ERP Vendors (Cont’d) Microsoft Dynamics Formerly Microsoft Business Solutions or Great Plains, Microsoft Dynamics is a comprehensive businessmanagement solution built on the Microsoft platform. Microsoft Dynamics integrates finances, e-commerce, supply chain, manufacturing, project accounting, field service, customer relationships, and human resources. Lawson Industry-tailored software solutions that include enterprise performance management, distribution, financials, human resources, procurement, and retail operations. www. lawson. com 41 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

ERP Vendors (Cont’d) SSA Global Acquired Baan in 2004. They claim to offer solutions that accomplish specific goals in shorter time frames and are more efficient with time. Epicor This company provides enterprise software solutions for midmarket companies around the world. Claims to have solutions to a variety of needs, whether a customer is looking for a complete end-to-end enterprise software solution or a specific application. 42 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Software Extensions and Trends • As e-Business firms started growing bigger with advanced needs in HR, accounting, and warehousing, non-ERP vendors were unable to support their requirements. • ERP vendors were starting to expand their functionality to the Internet and e-Business. • Intense competition and fluctuating sales have forced the ERP vendors to expand functionality to add value. • The saturation of the demand in big business and the lucrative nature of the small and midsized business markets have led vendors like SAP and Oracle to enter the small business market. 43 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Software Extensions and Trends • SOA implementation will continue to grow as a factor in ERP purchase decisions because vendors are using creative marketing around product strategies versus buying what is currently available. • Another shift is toward recurring and variable revenue models - Maintenance charges driving industry growth. • The other major revenue shift is toward software as a service or hosted subscription-based applications. • Social networking and open-source software solutions are also poised for significant growth. 44 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Implications for Management • ERP systems implementation is a complex organizational activity. – Important to evaluate and learn from the successes and failures. – Managing risk is all about keeping project focus and clear communications throughout the organization. • ERP systems implementation requires strong project management oversight. • ERP systems provide improved and added functionality for an organization. • ERP systems are set to proliferate globally. 45 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Summary • Whereas the risks for implementing an ERP are greater, the payoff is very high for organizations. • The integration of data helps an organization to better meet the demands of a fast and dynamic business world. • The use of ERP systems provides for integrated data and business processes, thereby creating opportunities for organizations to expand change as their business changes. 46 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Summary (Cont’d) • ERP components consist of hardware, software, information, process, and people to perform the fundamental phases of an information system: input, process, and output. • ERP system architecture is a blueprint of the actual ERP system. There are two types of architecture: physical and logical. • The selection of a system must be based on the needs of the organization and how well a vendor meets those needs now or in the future. 47 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Summary (Cont’d) • To be successful in implementing an ERP system, an organization and its management must clearly understand the implementation process. – The key to this is the application of an ERP life cycle and methodology throughout an implementation. • People and organizations are an important part of the implementation process. Without in-house experts, either the software vendor or a third party should be hired and used to assist or lead the project. • Whereas ERP implementations are costly in time and resources, the greater costs are in process change, system maintenance, and remaining current. 48 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Review Questions 1. How is the role of ERP system different from traditional TPS, MIS, DSS, and others? Can an ERP system support all levels of management? 2. Discuss the evolution of information systems in an organization. How can the use of ERP systems remove information or functional silos in organizations? 3. Among all the ERP components listed in the chapter, which component is most critical in the implementation process and why? 4. Discuss the role of ERP in organizations. Are ERP tools used for business process reengineering (BPR) or does BPR occur due to ERP implementation? 49 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Review Questions (Cont’d) 5. Why is the design and selection of ERP architecture crucial for the implementation project? What are the long-term implications of selecting a wrong architecture? 6. Discuss the criteria for selecting ERP vendors. Which is the most important criteria and why? 7. From the examples provided in the chapter on ERP success and failure stories, what are the critical success failures? 8. What are the critical steps of the ERP project cycle? Discuss the critical success factors? 50 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

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